Figuring out your own investment risk tolerance, and the most suitable investments, is actually fairly easy. There are quite a few handy tools on the web and we’ll go through a list of questions here.
Questions to Ask to Decide Your Investment Risk Tolerance
Determining your investment risk tolerance is usually done through a set of questions, both data and hypothetical. Think about each and how it applies to your own risk tolerance.
1) When do you expect to be using the money from your investments?
If you are going to need your money in less than a few years, your investment risk tolerance is going to be very low. YYou cannot afford for the stock market to take a nose dive.
The importance of reaching a particular financial goal is something most don’t think about with their investments.
They lump investments for retirement and education in with their vacation money and everything else. You will be able to tolerate a little more risk, and potentially see higher returns, with less important financial goals.
If you are going to be needing all or most of the money at a specific date, or over a short period, then you will have less tolerance for risk.